Independent School District No. 271 Bloomington, Minnesota. Financial Statements. June 30, 2018

Transcription

1 Bloomington, Minnesota Financial Statements June 30, 2018

2 Table of Contents Board of Education and Administration 1 Independent Auditor's Report 2 Management's Discussion and Analysis 5 Basic Financial Statements Government-Wide Financial Statements Statement of Net Position 20 Statement of Activities 21 Fund Financial Statements Balance Sheet Governmental Funds 22 Reconciliation of the Balance Sheet to the Statement of Net Position Governmental Funds 23 Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds 24 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities Governmental Funds 25 Statement of Revenues, Expenditures, and Changes in Fund Balances Budget and Actual General Fund 26 Statement of Net Position Proprietary Funds 27 Statement of Revenues, Expenses, and Changes in Fund Net Position Proprietary Funds 28 Statement of Cash Flows Proprietary Funds 29 Statement of Fiduciary Net Position 30 Statement of Changes in Fiduciary Net Position 30 Notes to Financial Statements 31 Required Supplementary Information Schedule of Changes in Total OPEB Liability and Related Ratios 68 Schedule of Employer Contributions OPEB Schedule of Investment Returns Schedule of District's Proportionate Share of Net Pension Liability General Employees Retirement Fund 69 Schedule of District's and Non-Employer Proportionate Share of Net Pension Liability TRA Retirement Fund 69 Schedule of District Contributions General Employees-Retirement Fund 70 Schedule of District Contributions TRA-Retirement Fund 70 Notes to the Required Supplementary Information 71 Supplementary Information Combining Balance Sheet Nonmajor Governmental Funds 74 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Nonmajor Governmental Funds 76

3 Table of Contents Supplementary Information (Continued) Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual Food Service Fund 78 Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual Community Service Fund 79 Combining Statement of Net Position Internal Service Funds 80 Combining Statement of Revenues, Expenses, and Changes in Fund Net Position Internal Service Funds 81 Combining Statement of Cash Flows Internal Service Funds 82 Statement of Changes in Agency Fund Assets and Liabilities 83 Uniform Financial Accounting and Reporting Standards Compliance Table 84 Schedule of Expenditures of Federal Awards 85 Notes to the Schedule of Expenditures of Federal Awards 86 Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 87 Report on Compliance for each Major Federal Program and on Internal Control over Compliance by the Uniform Guidance 89 Schedule of Findings and Questioned Costs in Accordance with the Uniform Guidance 91 Report on Legal Compliance 93

4 Board of Education and Administration June 30, 2018 Board of Education Position Term Expires Dawn Steigauf Chair January 3, 2022 Nelly Korman Vice Chair January 6, 2020 Maureen Bartolotta Clerk January 6, 2020 Dick Bergstrom Treasurer January 6, 2020 Tom Bennett Director January 3, 2022 Jim Sorum Director January 3, 2022 Beth Beebe Director January 3, 2022 Administration Les Fujitake Rod Zivkovich Superintendent Executive Director of Finance and Support Services Kim Agate Controller 1

5 Independent Auditor's Report To the School Board Independent School District No. 271 Bloomington, Minnesota Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Independent School District No. 271, Bloomington, Minnesota, as of and for the year ended June 30, 2018, and the related notes to financial statements, which collectively comprise the District's basic financial statements as listed in the Table of Contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the District's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the District's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. 2 BerganKDV, Ltd. bergankdv.com

6 Opinions In our opinion, the financial statements referred to in the first paragraph present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of Independent School District No. 271, Bloomington, Minnesota, as of June 30, 2018, and the respective changes in financial position and, where applicable, cash flows thereof, and the budgetary comparison for the General Fund for the year then ended in accordance with accounting principles generally accepted in the United States of America. Implementation of GASB 75 As discussed in Note 12 to the financial statements, the District has adopted new accounting guidance, Governmental Accounting Standards Board (GASB) Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other than Pensions. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis, which follows this report letter, and the Required Supplementary Information as listed in the Table of Contents be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by GASB, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the Required Supplementary Information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the District's basic financial statements. The accompanying supplementary information identified in the Table of Contents is presented for purposes of additional analysis and is not a required part of the basic financial statements. The accompanying Schedule of Expenditures of Federal Awards is presented for purposes of additional analysis as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, and is also not a required part of the financial statements. 3

7 Other Matters (Continued) Other Information (Continued) The accompanying supplementary information identified in the Table of Contents and the Schedule of Expenditures of Federal Awards are the responsibility of management and were derived from and relates directly to, the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the accompanying supplementary information and the Schedule of Expenditures of Federal Awards are fairly stated, in all material respects in relation to the basic financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated October 24, 2018, on our consideration of the District's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, and other matters. The purpose of that report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the District's internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District's internal control over financial reporting and compliance. Minneapolis, Minnesota October 24,

8 Management's Discussion and Analysis This section of the Independent School District No. 271, Bloomington Public Schools' (the "District") annual financial report presents the Management's Discussion and Analysis (MD&A) of the District's financial performance during the fiscal year ended June 30, Please read it in conjunction with the District's financial statements, which immediately follow this section. The MD&A is required supplementary information specified in the GASB Statement No. 34 Basic Financial Statements and Management's Discussion and Analysis for State and Local Governments issued in June Certain comparative information is required to be presented in the MD&A between the current year ( ) and the prior year ( ). FINANCIAL HIGHLIGHTS Total net position at June 30, 2018 was a negative $117.6 million, $50.8 million less than the prior year's balance. Overall program and general revenues were $180.3 million, $43.7 million less than related expenses of $224.0 million. The decline was mainly due to GASB 68 reporting requirements for booking future retirement benefits. Total General Fund balance (under the governmental fund presentation) decreased $3.7 million from the prior year. This was a budgeted decline which actual results were $1.2 better than expected. OVERVIEW OF THE FINANCIAL STATEMENTS This annual financial report consists of four parts: Independent Auditor's Report Management's Discussion and Analysis Basic financial statements Required supplementary information The basic financial statements include two kinds of statements that present different views of the District: 1. The government-wide financial statements provide both short-term and long-term information about the District's overall financial status. These include: The Statement of Net Position The Statement of Activities 2. The fund financial statements focus on individual parts of the District, reporting the District's operations in more detail than the government-wide statements. The governmental funds statements examine how basic services, such as regular and special education were financed in the short-term, as well as what remains for future spending. Proprietary funds statements present short-term and long-term financial information about the activities the District operates like businesses, such as dental and medical self insurance, retiree severance and vacation funds. 5

9 Management's Discussion and Analysis OVERVIEW OF THE FINANCIAL STATEMENTS (CONTINUED) Fiduciary funds statements provide information about the financial relationships in which the District acts solely as a trustee or agent for the benefit of others. The District is the Agent for the Bloomington Education Cable Television Fund. The District is also holding funds to be paid to Bloomington Kennedy graduates for college scholarships. The financial statements also include notes that explain some of the information in the statements and provide more detailed data. The statements are followed by a section of required supplementary information that further explains and supports the financial statements with a comparison of the District's budget for the year. Figure A-1 on the following page shows how the various parts of this annual report are arranged and how they relate to one another. Figure A-1 Organization of the District's Annual Financial Report Independent Auditor's Opinion Management's Discussion and Analysis Basic Financial Statements Government- Wide Financial Statements Fund Financial Statements Notes to the Financial Statements Summary Detail 6

10 Management's Discussion and Analysis OVERVIEW OF THE FINANCIAL STATEMENTS (CONTINUED) Figure A-2 summarizes the major features of the District's financial statements, including the portion of the District's activities which they cover and the types of information that they contain. The remainder of this overview section of the MD&A highlights the structure and contents of each of the statements. Figure A-2 Major Features of the Government-Wide Figure A-1 and Fund Financial Statements Fund Financial Statements Scope Government-Wide Financial Statements Entire District (except Fiduciary Funds) Government Funds Proprietary Funds Fiduciary Funds The activities of the District that are not proprietary or fiduciary, such as special education, food service, community education and building maintenance Activities the District operates similar to private businesses, such as self-insured medical and dental funds Instances in which the District administers resources on behalf of someone else, such as Bloomington Educational Cable and student activities accounts Required Financial Statements Accounting Basis and Measurement Focus Type of Asset/ Liability Information Statement of Net Position Statement of Activities Accrual accounting and economic resources focus All assets and liabilities, both financial and capital, short-term and longterm Balance Sheet Statement of Revenues, Expenditures and Changes in Fund Balances Modified accrual accounting and current financial focus Generally assets expected to be used up and liabilities that come due during the year or soon thereafter; no long-term liabilities included Statement of Net Position Statement of Revenues, Expenses and Changes in Net Position Statement of Cash Flows Accrual accounting and economic resources focus All assets and liabilities, both financial and capital, and short-term and long-term Statement of Fiduciary Net Position Statement of Changes in Fiduciary Net Position Accrual accounting and economic resources focus All assets and liabilities, both shortterm and long-term; funds do not currently contain capital assets, although they can Type of inflow/out flow information All revenues and expenses during year, regardless of when cash is received or paid Revenues for which cash is received during or soon after the end of the year; expenditures when goods or services have been received and the related liability is due and payable. All revenues and expenses during the year, regardless of when cash is received or paid All additions and deductions during the year, regardless of when cash is received or paid 7

11 Management's Discussion and Analysis GOVERNMENT-WIDE FINANCIAL STATEMENTS The government-wide financial statements (Statement of Net Position and Statement of Activities) report information about the District as a whole using accounting methods similar to those used by private-sector companies. The Statement of Net Position includes all of the District's assets and liabilities. All of the current year's revenues and expenses are accounted for in the Statement of Activities regardless of when cash is received or paid. The two government-wide financial statements report the District's net position and how they have changed. Net Position, the difference between the District's assets and deferred outflows of resources and liabilities and deferred inflows of resources, is one way to measure the District's financial health or position. Over time, increases or decreases in the District's net position are an indicator of whether its financial position is improving or deteriorating, respectively. To assess the District's overall health, consideration is given to additional nonfinancial factors, such as changes in the District's property tax base and the condition of school buildings and other facilities. In the government-wide financial statements, the District's activities are presented in one category titled governmental activities. Governmental Activities: Most of the District's basic services are included here, such as regular and special education, transportation and administration. State formula aid and property taxes finance most of these activities. FUND FINANCIAL STATEMENTS The fund financial statements provide more detailed information about the District's funds, focusing on its most significant or "major" funds, not the District as a whole. "Non-major" funds such as, food service and community service do not meet the threshold to be classified as "major" funds. Funds are accounting devices the District uses to keep track of specific sources of funding and spending on particular programs: Some funds are required by state law and by bond covenants. The District establishes other funds to control and manage money for particular purposes (such as repaying its long-term debts) or to show that it is properly using certain revenues (such as federal grants). 8

12 Management's Discussion and Analysis FUND FINANCIAL STATEMENTS (CONTINUED) The District has three kinds of funds: Governmental Funds: Most of the District's basic services are included in governmental funds, which generally focus on (1) how cash and other financial assets that can readily be converted to cash flow in and out and (2) the balances left at year-end that are available for spending. Consequently, the governmental funds statements provide a detailed short-term view that helps the reader determine whether there are more or fewer financial resources that can be spent in the near future to finance the District's programs. Because this information does not encompass the additional long-term focus of the government-wide statements, additional information following the governmental funds statements explains the relationship (or differences) between them. Proprietary Funds: Services for which the District charges a fee are generally reported in proprietary funds. Proprietary funds are reported in the same way as the government-wide statements. The District uses internal service funds to report activities that provide supplies and services for its other programs and activities. The District currently has four internal service funds; the Self-Insured Dental Fund, Self-Insured Medical Benefits Fund, Other Post Employment Benefits (OPEB) Fund, and the Retiree Benefits Fund. Fiduciary Funds: The District is the trustee, or fiduciary, for assets that belong to others, such as the Bloomington Educational Cable Television Fund or the Bloomington Kennedy Trust Fund for scholarships. The District is responsible for ensuring the assets reported in these funds are used only for their intended purposes and by those to whom the assets belong. The District excludes these activities from the government-wide financial statements because it cannot use these assets to finance its operations. 9

13 Management's Discussion and Analysis FUND FINANCIAL STATEMENTS (CONTINUED) Net Position: The District's combined net position on June 30, 2018 was negative $117.6 million, $50.8 million less than the prior year's balance. (See Figure A-3.) The decline was due to second year of GASB 68 reporting requirements for booking retirement benefits. Figure A-3 Net Position - Governmental Activities Assets Current and other assets Capital assets Year Ended Year Ended Percentage Change $ 156,553,891 $ 162,026, % 119,663, ,601, % Total assets 276,217, ,628, % Deferred Outflows of Resources 154,033, ,209, % Total assets and deferred outflows of resources $ 430,250,279 $ 487,837, % Liabilities Other liabilities Long-term liabilities $ 35,657,116 $ 30,709, % 408,652, ,968, % Total liabilities $ 444,309,589 $ 498,677, % Deferred Inflows of Resources $ 103,524,420 $ 55,957, % Net Position Net investment in capital assets $ 14,720,909 $ 19,786, % Restricted 19,127,805 14,123, % Unrestricted (151,432,444) (100,707,205) % Total net position $ (117,583,730) $ (66,797,303) % Changes in Net Position: The District's total revenues were $180.3 million for the year ended June 30, (See figure A-4.) Property taxes and state formula aid accounted for 69% of the District's revenue. (See Figure A-5.) Another 24% came from grants and contributions restricted for specific programs. The remainder came from fees charged for services and miscellaneous sources. The total cost of all programs and services was $224.0 million. The District's expenses are predominantly related to direct instruction, instructional, and pupil support services (73%). (See Figure A-6.) The District's administration and district support is 5% of total costs. 10

14 Management's Discussion and Analysis FINANCIAL ANALYSIS OF THE DISTRICT AS A WHOLE Figure A-4 Change in Net Position Year Ended Year Ended Percentage Change Revenues Program revenues Charges for services $ 8,869,505 $ 10,313, % Operating grants and contributions 43,790,703 43,899, % General revenues Property taxes 50,806,046 49,978, % State aid-formula grants 73,259,833 74,445, % Other 3,603,008 3,908, % Total revenues 180,329, ,546, % Expenses Administration $6,891,240 6,625, % District support services 4,672,656 5,053, % Elementary and secondary regular instruction 91,609,257 94,205, % Vocational education instruction 1,639,906 2,077, % Special education instruction 41,713,529 38,543, % Instructional support services 14,522,006 13,001, % Pupil support services 13,901,667 12,739, % Sites and buildings 19,146,659 18,382, % Fiscal and other fixed cost programs 380, , % Food service 5,242,904 5,317, % Community education and services 12,350,253 12,958, % Unallocated depreciation 8,529,120 8,035, % Interest and fiscal charges on long-term debt 3,425,272 3,482, % Total expenses 224,024, ,762, % Increase (decrease) in net position (43,695,649) (38,216,206) 14.34% Net Position Net position - beginning, as previously stated (66,797,303) (28,581,097) % Change in accounting principle (7,090,778) - Beginning of year (73,888,081) (28,581,097) % End of year $ (117,583,730) $ (66,797,303) % 11

15 Management's Discussion and Analysis FINANCIAL ANALYSIS OF THE DISTRICT AS A WHOLE (CONTINUED) Figure A-5 Source of Revenues for Fiscal Year 2018 Other 2% Charges for Services 5% State Aid-Formula Grants 41% Operating Grants and Contributions 24% Property Taxes 28% Figure A-6 Expenses for Fiscal Year 2018 Food Service 2% Fiscal and Other Fixed Cost Programs Less than 1% Community Education and Services 5% Unallocated Depreciation 4% Interest and Fiscal Charges on Long- Term Debt 2% Administration 3% District Support Services 2% Sites and Buildings 9% Pupil Support Services 6% Instructional Support Services 6% Special Education Instruction 19% Vocational Education Instruction 1% Elementary and Secondary Regular Instruction 41% 12

16 Management's Discussion and Analysis GOVERNMENTAL ACTIVITIES Figure A-7 presents the cost of District activities. The table also shows each activity's net cost (total cost less fees generated by the activities and intergovernmental aid provided for specific programs). Total Cost of Services Net Cost of Services Administrative $ 6,891,240 $ 6,891,240 District support services 4,672,656 4,672,656 Elementary and secondary regular instruction 91,609,257 74,903,173 Vocational education instruction 1,639,906 1,545,452 Special education instruction 41,713,529 21,034,171 Instructional support services 14,522,006 14,522,006 Pupil support services 13,901,667 13,463,065 Sites and buildings 19,146,659 18,971,538 Fiscal and other fixed cost programs 380, ,275 Food service 5,242, ,243 Community education and services 12,350,253 2,794,325 Unallocated depreciation 8,529,120 8,529,120 Interest and fiscal charges on long-term debt 3,425,272 3,425,272 Total $ 224,024,744 $ 171,364,536 Approximately 4.0% or $8.9 million, of expenses were paid by users of District services through various fees and charges. Other specific program costs are offset with grants and contributions totaling $43.8 million, or 19.6%, of expenses for The net cost of District services ($171.4 million) was paid for with local property taxes, state aid, federal grants and from District fund balances when expenses exceed revenues. FINANCIAL ANALYSIS OF THE DISTRICT'S FUNDS At the end of the fiscal year, the District's governmental funds reported a combined fund balance of $42.4 million, a decrease of $18.1 million from the June 30, 2017, combined fund balance of $60.5 million. The main decrease was due to a $14.2 million in the capital projects fund attributable to the spending on Alternative Facilities projects funded by prior year bond proceeds. 13

17 Management's Discussion and Analysis GENERAL FUND The General Fund is the District's primary operating fund, providing instructional services to students from kindergarten through grade 12. In addition, the costs of pupil transportation and operating capital expenditures for equipment and facilities are included in the full reporting of the General Fund. School funding in Minnesota is driven largely by pupil enrollment. In , the District saw an increase of 37 average daily membership (ADM) over Current ADM is 10,438. The graph below illustrates the current trend in student enrollment over the previous five years ADM (Average Daily Memberships) Sec Elem K + EC GENERAL FUND BUDGETARY HIGHLIGHTS Over the course of the year, the District amended the annual operating budget. The budget amendments account for enrollment changes, previous year carryover and amendments to federal and other grant programs. While the District's amended budget for the General Fund projected a net decrease in the fund balance of $4.9 million, the actual performance shows a net decrease of $3.7 million. The majority of this difference was due to higher than expected state special education revenue. 14

18 Management's Discussion and Analysis GENERAL FUND BUDGETARY HIGHLIGHTS (CONTINUED) Actual revenues were $148.9 million or $4.0 million over the budget of $144.9 million. Actual expenditures were $152.3 million, or $2.8 million over the budget of $149.5 million. Administrative District support services Elementary and secondary regular instruction Vocational education instruction Special education instruction Instructional support services Pupil support services Sites and buildings Figure A-8 General Fund Expenditures Variance with Final Net Actual Final Budget - Budget Amounts Over (Under) $ 5,911,192 $ 5,741,880 $ (169,312) 3,315,188 4,166, ,314 70,533,703 69,039,259 (1,494,444) 1,826,522 1,306,585 (519,937) 30,018,048 33,559,353 3,541,305 10,036,161 10,231, ,872 11,488,649 12,431, ,637 8,662,619 10,181,635 1,519, , ,275 (6,725) Fiscal and other fixed cost programs Capital outlay 7,233,277 5,172,827 (2,060,450) Debt service 69,844 69,845 1 Total $ 149,482,203 $ 152,280,480 $ 2,798,277 FOOD SERVICE FUND The Food Service Fund is used to record financial activity for the purpose of preparation and service of milk, meals and snacks in connection with school and community service activities. The Food Service Fund expenditures exceed revenues by $173,551 in This Fund continues to meet the District's established fund balance goals. COMMUNITY SERVICE FUND The Community Service Fund is used to record financial activities of the Community Services Preschool to Senior Citizens Programs. The Community Service Fund balance increased $702,426 in The increase is a result of lower than budgeted spending in all areas within the budget. This Fund continues to meet the District's established fund balance goals. 15

19 Management's Discussion and Analysis DEBT SERVICE FUND The Debt Service Fund is used to record revenues and expenditures for a school district's outstanding bonded indebtedness, whether for building construction, operating capital or for initial or refunding bonds. The Debt Service Fund balance for totaled $690,152. The fund balance was $1,357,182 in CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets By the end of 2018, the District had invested $119.7 million in a broad range of capital assets, including school buildings, athletic facilities, computers and audio-visual equipment. (See Figure A-9.) (More detailed information about capital assets can be found in Note 5 to the financial statements.) Figure A-9 Capital Assets Year Ended Year Ended Land $ 2,085,954 $ 2,085,954 Construction in progress 1,336, ,028 Buildings and buildings improvement 111,516, ,800,345 Furniture and equipment 4,724,238 4,553,399 Total capital assets $ 119,663,325 $ 118,601,726 DEBT ADMINISTRATION Figure A-10 Outstanding Long-Term Liabilities Year Ended Year Ended General Obligation (G.O.) Bonds and Loans Benefits payable Total long-term liabilities $ 126,453,290 $ 135,121,612 1,631,909 1,582,674 $ 128,085,199 $ 136,704,286 16

20 Management's Discussion and Analysis DEBT ADMINISTRATION (CONTINUED) At year-end, the District had $128.1 million in long-term liabilities, including G.O. bonds, capital leases, severance benefits, and compensated absences. (More detailed information about the District's long-term liabilities is presented in Note 6 to the financial statements). The June 30, 2018, Debt Service Fund balance of $0.7 million is available for meeting future debt service obligations, in addition to levied property taxes payable in FACTORS BEARING ON THE DISTRICT'S FUTURE At the time these financial statements were prepared and audited, the District was aware of the following existing circumstances that could significantly affect its financial health in the future: The District continues to position itself financially for anticipated flat or limited funding in the future. The District's budget required a $1.1 million spend down of fund balance. The District is anticipating additional budget cuts for both and fiscal years. CONTACTING THE DISTRICT'S FINANCIAL MANAGEMENT This financial report is designed to provide the District's citizens, taxpayers, customers, investors and creditors with a general overview of the District's finances and to demonstrate the District's accountability for the money it is entrusted with. If you have questions about this report or need additional financial information, contact the Finance Office, Independent School District No. 271, 1350 West 106 th Street, Bloomington, Minnesota

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22 BASIC FINANCIAL STATEMENTS 19

23 Statement of Net Position June 30, 2018 Governmental Activities Assets Cash and investments $ 111,656,644 Current property taxes receivable 27,690,234 Delinquent property taxes receivable 178,949 Accounts receivable 131,772 Interest receivable 694,443 Due from Department of Education 11,561,371 Due from other Minnesota school districts 260,256 Due from Federal Government through Department of Education 3,684,767 Due from other governmental units 166,199 Inventory 408,141 Prepaid items 121,115 Capital assets not being depreciated Land 2,085,954 Construction in progress 1,336,889 Capital assets net of depreciation Buildings and building improvements 111,516,244 Furniture and equipment 4,724,238 Total assets 276,217,216 Deferred Outflows of Resources Deferred amount on refunding 347,839 Deferred outflows related to OPEB 993,279 Deferred outflows related to pensions 152,691,945 Total deferred outflows of resources 154,033,063 Total assets and deferred outflows of resources $ 430,250,279 Liabilities Accounts and contracts payable $ 5,205,165 Contracts payable Salaries and benefits payable 19,492,258 Interest payable 1,932,468 Due to other Minnesota school districts 790,938 Due to other governmental units 26,973 Unearned revenue 685,465 Net bond principal payable Due within one year 7,305,000 Due in more than one year 118,903,922 Loan payable Due within one year 55,658 Due in more than one year 188,710 Compensated absences payable Due within one year 121,050 Due in more than one year 1,089,450 Severance payable Due within one year 42,141 Due in more than one year 379,268 OPEB Liability 11,456,017 Net pension liability 276,635,106 Total liabilities 444,309,589 Deferred Inflows of Resources Property taxes levied for subsequent year's expenditures 52,901,270 Deferred inflows related to OPEB 382,195 Deferred inflows related to pensions 50,240,955 Total deferred inflows of resources 103,524,420 Net Position Net investment in capital assets 14,720,909 Restricted for Other purposes 19,127,805 Unrestricted (151,432,444) Total net position (117,583,730) Total liabilities, deferred inflows of resources, and net position $ 430,250,279 See notes to financial statements. 20

24 Statement of Activities Year Ended June 30, 2018 Program Revenues Net (Expense) Revenues and Changes in Net Position Functions/Programs Expenses Charges for Services Operating Grants and Contributions Capital Grants and Contributions Governmental Activities Governmental activities Administration $ 6,891,240 $ - $ - $ - $ (6,891,240) District support services 4,672, (4,672,656) Elementary and secondary regular instruction 91,609, ,785 15,969,299 - (74,903,173) Vocational education instruction 1,639,906-94,454 - (1,545,452) Special education instruction 41,713, ,421 20,357,937 - (21,034,171) Instructional support services 14,522, (14,522,006) Pupil support services 13,901,667 66, ,262 - (13,463,065) Sites and buildings 19,146, , (18,971,538) Fiscal and other fixed cost programs 380, (380,275) Food service 5,242,904 1,690,490 3,320,171 - (232,243) Community education and services 12,350,253 5,879,348 3,676,580 - (2,794,325) Unallocated depreciation 8,529, (8,529,120) Interest and fiscal charges on long-term debt 3,425, (3,425,272) Total governmental activities $ 224,024,744 $ 8,869,505 $ 43,790,703 $ - (171,364,536) General revenues Taxes Property taxes, levied for general purposes 36,451,008 Property taxes, levied for debt service 9,569,588 Property taxes, levied for community service 2,063,228 Property taxes, levied for capital projects 2,722,222 State aid-formula grants 73,259,833 Other general revenues 2,598,847 Investment income 1,004,161 Total general revenues 127,668,887 Change in net position (43,695,649) Net position - beginning (66,797,303) Change in accounting principle (see Note 12) (7,090,778) Net position - beginning, as restated (73,888,081) Net position - ending $ (117,583,730) 21 See notes to financial statements.

25 Balance Sheet - Governmental Funds June 30, 2018 Total General Debt Service Capital Projects Nonmajor Funds Governmental Funds Assets Cash and investments $ 49,106,325 $ 5,835,520 $ 14,465,620 $ 8,851,823 $ 78,259,288 Current property taxes receivable 21,449,007 4,979,488-1,261,739 27,690,234 Delinquent property taxes receivable 132,116 36,946-9, ,949 Accounts receivable 80, , ,757 Interest receivable 235, , ,139 Due from Department of Education 11,081, , ,149 11,561,371 Due from Federal Government through Department of Education 3,393, ,363 3,684,767 Due from other Minnesota school districts 21, , ,256 Due from other governmental units 166, ,199 Inventory 269, , ,141 Prepaid items 92, , ,115 Total assets $ 86,027,692 $ 11,019,397 $ 14,568,601 $ 11,183,526 $ 122,799,216 Liabilities Accounts payable $ 356,363 $ - $ 4,347,771 $ 9,476 $ 4,713,610 Contracts payable , ,555 Salaries and benefits payable 16,240,849-39,382 1,425,027 17,705,258 Due to other Minnesota school districts 778,692-12, ,938 Due to other governmental units 26, ,973 Interfund payable 2,438,481-4, ,975 2,686,068 Unearned revenue 423, , ,465 Total liabilities 20,264,102-4,895,566 1,940,199 27,099,867 Deferred inflows of resources Property tax levied for subsequent year's expenditures 40,051,448 10,251,991-2,597,831 52,901,270 Unavailable revenue - delinquent property taxes 308,885 77,254-21, ,518 Total deferred inflows of resources 40,360,333 10,329,245-2,619,210 53,308,788 Fund Balances Nonspendable for Inventory 269, , ,141 Prepaid items 92, , ,115 Restricted for Capital projects levy 4,328, ,328,264 Operating capital 7,359, ,359,057 Medical assistance 460, ,023 State approved alternative program 852, ,230 Long-term Facilities Maintenance - - 9,673,035-9,673,035 Fund purpose - 690,152-6,456,823 7,146,975 Committed for Wellness 140, ,965 Uniform and instrument replacement 110, ,702 Athletic activities 825, ,437 Site department carryover funds 764, ,885 Staff development 176, ,776 Unassigned 10,022, ,022,956 Total fund balances 25,403, ,152 9,673,035 6,624,117 42,390,561 Total liabilities, deferred inflows of resources, and fund balances $ 86,027,692 $ 11,019,397 $ 14,568,601 $ 11,183,526 $ 122,799,216 See notes to financial statements. 22

26 Reconciliation of the Balance Sheet to the Statement of Net Position - Governmental Funds June 30, 2018 Total fund balances - governmental funds $ 42,390,561 Amounts reported for governmental activities in the Statement of Net Position are different because: Capital assets used in governmental activities are not current financial resources and, therefore, are not reported as assets in governmental funds. Cost of capital assets 259,267,169 Less accumulated depreciation (139,603,844) Long-term liabilities, including bonds payable, are not due and payable in the current period and, therefore, are not reported as liabilities in the funds. Long-term liabilities at year-end consist of: Bond principal payable (121,390,000) Loan payable (244,368) Bond premiums (4,818,922) Deferred amount on refunding 347,839 Compensated absences payable (1,210,500) OPEB Liability (11,456,017) Net pension liability (276,635,106) Deferred outflows of resources and deferred inflows of resources are created as a result of various differences related to pensions that are not recognized in the governmental funds. Deferred outflows related to pensions 152,691,945 Deferred inflows related to pensions (50,240,955) Deferred outflows of resources and deferred inflows of resources are created as a result of various differences related to OPEB that are not recognized in the governmental funds. Deferred inflows related to OPEB (382,195) Deferred outflows related to OPEB 993,279 Delinquent property taxes receivable will be collected in subsequent years, but are not available soon enough to pay for the current period's expenditures and, therefore, are deferred in the funds. 407,518 The retiree benefit and OPEB internal service funds are used to charge the benefits to the fund that incurs the cost. This amount represents assets available to fund the liabilities. 17,885,463 The dental and self insured medical benefit plans internal service funds are used by management to charge the costs of the self-insured plans. The assets and liabilities of the internal service funds are included in governmental activities in the statement of net position and interfund activity is removed. 16,768,280 Governmental funds do not report a liability for accrued interest on bonds and capital loans until due and payable. (1,932,468) Total net position - governmental activities $ (117,583,730) See notes to financial statements. 23

27 Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds Year Ended June 30, 2018 Total General Debt Service Capital Projects Nonmajor Funds Governmental Funds Revenues Local property taxes $ 36,447,171 $ 8,755,920 $ 2,722,222 $ 2,879,197 $ 50,804,510 Other local and county revenues 4,035,238 27, ,498 6,070,405 10,338,757 Revenue from state sources 104,337,216 1,721,773-3,462, ,521,313 Revenue from federal sources 3,984, ,285,405 7,270,267 Sales and other conversion of assets 103, ,703,757 1,807,475 Interdistrict revenue , ,870 Total revenues 148,908,205 10,505,309 2,927,720 17,639, ,981,192 Expenditures Current Administration 5,741, ,741,880 District support services 4,166, ,166,502 Elementary and secondary regular instruction 69,039, ,990 69,086,249 Vocational education instruction 1,306, ,306,585 Special education instruction 33,559, ,559,353 Instructional support services 10,231, ,231,033 Pupil support services 12,431, ,431,286 Sites and buildings 10,181,635-1,333,284-11,514,919 Fiscal and other fixed cost programs 380, ,275 Food service ,244,680 5,244,680 Community education and services ,306,597 11,306,597 Capital outlay Administration 13, ,792 District support services 200, ,699 Elementary and secondary regular instruction 330, ,714 Vocational education instruction 1, ,855 Special education instruction 86, ,456 Instructional support services 2,132, ,132,074 Pupil support services 1,230, ,230,723 Sites and buildings 1,176,514-15,824,944-17,001,458 Community education and services ,707 47,707 Debt service Principal 52,387 6,690, ,000 7,342,387 Interest and fiscal charges 17,458 4,482, ,618 4,777,415 Total expenditures 152,280,480 11,172,339 17,158,228 17,523, ,134,639 Excess of revenues over (under) expenditures (3,372,275) (667,030) (14,230,508) 116,366 (18,153,447) Other Financing Sources (Uses) Proceeds from sale of capital assets 59, ,108 Transfers in , ,433 Transfers out (355,433) (355,433) Total other financing sources (uses) (296,325) ,433 59,108 Net change in fund balances (3,668,600) (667,030) (14,230,508) 471,799 (18,094,339) Fund Balances Beginning of year 29,071,857 1,357,182 23,903,543 6,152,318 60,484,900 End of year $ 25,403,257 $ 690,152 $ 9,673,035 $ 6,624,117 $ 42,390,561 See notes to financial statements. 24

28 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities - Governmental Funds Year Ended June 30, 2018 Net change in fund balances - total governmental funds $ (18,094,339) Amounts reported for governmental activities in the Statement of Activities are different because: Capital outlays are reported in governmental funds as expenditures. However, in the Statement of Activities, the cost of those assets is allocated over the useful lives as depreciation expense. Capital outlays 10,749,423 Depreciation expense (9,456,969) Loss on disposal (230,855) Compensated absences and severance are recognized as paid in the governmental funds but recognized as the expense is incurred in the Statement of Activities. (49,235) Net OPEB are recognized as paid in the governmental funds but recognized as the expense is incurred in the Statement of Activities. 596,576 Principal payments on long-term debt are recognized as expenditures in the governmental funds but have no effect on net position in the Statement of Activities. 7,342,387 Governmental funds recognized pension contributions as expenditures at the time of payment whereas the Statement of Activities factors in items related to pensions on a full accrual perspective. (37,874,001) Interest on long-term debt in the Statement of Activities differs from the amount reported in the governmental funds because interest is recognized as an expenditure in the funds when it is due and thus requires use of current financial resources. In the Statement of Activities, however, interest expense is recognized as the interest accrues, regardless of when it is due. (8,512) Governmental funds report the effect of bond premiums when the debt is first issued, whereas these amounts are deferred and amortized in the Statement of Activities. 1,360,655 The retiree benefit internal service funds are used to charge the benefits to the fund that incurs the cost. This amount represents assets available to fund the liabilities and obligations. (798,070) The dental and self-insured medical benefit plans internal service funds are used by management to charge the costs of the self insured plans. The increase in net position is reported within the governmental activities in the Statement of Activities. 2,765,755 Delinquent property taxes receivable will be collected in subsequent years, but are not available soon enough to pay for the current period's expenditures and, therefore, are deferred in the funds. 1,536 Change in net position - governmental activities $ (43,695,649) See notes to financial statements. 25

29 Statement of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - General Fund Year Ended June 30, 2018 Variance with Budgeted Amounts Actual Final Budget - Original Final Amounts Over (Under) Revenues Local property taxes $ 36,583,444 $ 36,583,444 $ 36,447,171 $ (136,273) Other local and county revenues 3,902,509 3,982,509 4,035,238 52,729 Revenue from state sources 100,021, ,413, ,337,216 2,923,879 Revenue from federal sources 2,885,011 2,885,011 3,984,862 1,099,851 Sales and other conversion of assets 18,000 18, ,718 85,718 Total revenues 143,410, ,882, ,908,205 4,025,904 Expenditures Current Administration 5,862,039 5,911,192 5,741,880 (169,312) District support services 3,444,837 3,117,733 4,166,502 1,048,769 Elementary and secondary regular instruction 68,573,685 70,533,703 69,039,259 (1,494,444) Vocational education instruction 1,824,732 1,826,522 1,306,585 (519,937) Special education instruction 30,018,048 30,018,048 33,559,353 3,541,305 Instructional support services 9,766,018 10,036,161 10,231, ,872 Pupil support services 11,226,649 11,488,649 12,431, ,637 Sites and buildings 8,662,619 8,662,619 10,181,635 1,519,016 Fiscal and other fixed cost programs 387, , ,275 (6,725) Capital outlay Administration 109, ,109 13,792 (95,317) District support services , ,699 Elementary and secondary regular instruction 318, , ,714 21,814 Vocational education instruction 6,000 1,500 1, Special education instruction 26,197 26,197 86,456 60,259 Instructional support services 1,942,101 1,942,101 2,132, ,973 Pupil support services 889, ,425 1,230, ,298 Sites and buildings 2,953,500 4,153,500 1,176,514 (2,976,986) Debt service Principal 52,387 52,387 52,387 - Interest and fiscal charges 17,457 17,457 17,458 1 Total expenditures 146,079, ,482, ,280,480 2,798,277 Excess of revenues over (under) expenditures (2,669,263) (4,599,902) (3,372,275) 1,227,627 Other Financing Sources (Uses) Proceeds from sale of capital assets 50,000 50,000 59,108 9,108 Transfers out (555,097) (305,097) (355,433) (50,336) Total other financing sources (uses) (505,097) (255,097) (296,325) (41,228) Net change in fund balance $ (3,174,360) $ (4,854,999) (3,668,600) $ 1,186,399 Fund Balance Beginning of year 29,071,857 End of year $ 25,403,257 See notes to financial statements. 26